“What’s more important for us to develop for our products – MAP pricing or MSRP?”
“Aren’t MAP pricing and MSRP more or less the same thing?”
“Can we have both MSRP and MAP pricing for our products?”
We at TrackStreet hear a lot of questions like these from manufacturers interested in deploying our MAP monitoring and enforcement platform. In fact, there seems to be such widespread confusion about what these pricing strategies are and how they work together – even among experienced manufacturers and brands – that we thought it was worth devoting a page to explaining them.
Before we jump into our overview of MAP pricing and MSRP, here are a few of the most important points we want you to take away from this page.
KEY TAKEAWAYS ABOUT MAP PRICING AND MSRP
- These pricing policies are not the same; they address different goals for a manufacturer
- Ideally, your MAP pricing and MSRP should work to support each other
- If crafted and enforced properly, neither pricing policy will constitute price fixing
WHAT IS MSRP?
A manufacturer’s suggested retail price (MSRP) represents the actual price that a manufacturer recommends its retail partners sell its products.
When a manufacturer establishes an MSRP for its product, the company is typically attempting to accomplish a few key goals. First, the manufacturer is attempting to standardize a product’s retail price across the company’s resale channel. This way, the manufacturer can protect the interests of all of its retailers – particularly the brick-and-mortar store chains carrying its product line – from being unfairly undersold by competitors.
A second goal of an MSRP is to establish a price that takes into account all of the costs required for selling the product – from all costs incurred in the manufacturing and distribution processes, to the typical markups for wholesalers and retailers. This way, the manufacturer helps ensure that all businesses involved in the sale can earn a profit from it.
Finally, just as manufacturers establish MAP pricing in part to protect their brand’s perceived value – because a product constantly advertised at bargain prices can eventually harm the brand’s reputation – an MSRP also helps manufacturers protect their brand over time, keeping its retail prices at levels that suggest a quality brand.
WHAT IS MAP PRICING?
A minimum advertised price (“MAP”) is the dollar amount, set by the manufacturer, that represents the lowest price the business will allow its resellers to advertise one of its products.
There are two key things to understand about MAP pricing. First, it addresses only how products are advertised or otherwise publicly displayed by resellers. A MAP pricing policy does not attempt to control the actual selling prices of those products. In private negotiations with customers, resellers are free to sell a product below the manufacturer’s MAP-approved price, as long as its publicly displayed pricing is at or above the MAP level.
Second, MAP pricing is a one-way policy established by the manufacturer. In fact, it must be structured this way to avoid violating antitrust law as a “price fixing” scheme. Yes, a manufacturer can and should actively enforce its MAP pricing policy – warning and even penalizing resellers who advertise products below MAP levels to undercut competitors. But a MAP pricing policy cannot be structured as a two-way agreement by a manufacturer and a reseller.
HOW MAP PRICING AND MSRP DIFFER, HOW THEY’RE SIMILAR, AND HOW THEY CAN WORK TOGETHER
The key difference between MAP pricing and MSRP is how the two pricing policies are meant to be applied. Whereas MAP pricing addresses only how a reseller advertises a product, MSRP represents the amount a manufacturer recommends its retailers actually sell the product.
But these pricing policies also have one major element in common: They must both be set up as one-way policies and not as agreements between manufacturer and reseller. Indeed, this is how both an MSRP and a MAP pricing policy can be used by a manufacturer without being deemed illegal price-fixing schemes.
According to antitrust law, if a manufacturer’s decision to establish a retail price for its product – whether the advertised price or the actual selling price – is deemed an independent, unilateral decision, and the retailer’s decision to adhere to that pricing guideline is also deemed independent, then such an arrangement will typically be considered entirely legal.
Manufacturers can legally enforce both their MAP pricing policy and their MSRP – by punishing a retailer who repeatedly violates either of these policies, including refusing to continue doing business with that company. But the key to staying on the right side of the law for both policies will be to make sure that neither is officially set up as a contract that a reseller must agree to in order to be allowed to sell the manufacturer’s products.
Ideally, a manufacturer will be able to use both of these pricing policies together to support its resale channel, protect its own margins and those of its retailers, and preserve and even strengthen its brand over time.
With an MSRP, a manufacturer lets its retail partners know how much it wants them selling its products for. At the same time, the MSRP sends a signal to all of these retailers that their competitors who are also selling these products will face penalties from the manufacturer for violating its suggested retail pricing. That means each retail partner will feel more confident in setting its retail price at the MSRP level.
Working in conjunction with the MSRP, the manufacturer’s MAP pricing lets retailers know the lowest amount they’ll be allowed to advertise those products. This will further standardize the products’ prices across the entire resale channel, giving every retailer a fair chance to compete for sales, and lowering the chances of a free-riding retailer undercutting everyone else.
These strategies will work, of course, only to the extent that the manufacturer not only establishes and publicizes its MAP pricing and MSRP policies, but also that the company actively monitors its products’ pricing across its entire channel and that it aggressively enforces its pricing policies as well.
MAP Pricing: A Guide for Manufacturers and Brands
If there’s a policy in manufacturing or retail that is more misunderstood than the MAP pricing policy, we haven’t seen it. Manufacturers and brands trying to control the prices of their products on the resale market often have no idea how to draft a Minimum Advertised Price (MAP) policy, where the legal lines are, whether online marketplaces like Amazon will help them enforce their MAP guidelines, or if a MAP pricing policy is even the right type of policy for them in the first place.
If you’ve had any such questions, or if you’re just looking for guidance on setting up your MAP pricing and preventing violations, you’re in the right place.
What Is MAP Pricing?
MAP pricing is the set of prices that a manufacturer or brand establishes for its products below which the company tries to influence its resale partners not to advertise. Let’s unpack that definition, starting with the two operative words: advertise and influence.
MAP pricing relates only to “advertised” prices (the “A” in Minimum Advertised Pricing), because the policy does not extend to the retailer’s actual resale price.
The thinking behind this approach is that, while a retailer is free to negotiate privately with end-user customers and actually sell a brand’s products for any price it wants, the entire resale channel has an interest in keeping publicly advertised prices of that brand’s products at or above a certain minimum levels.
How Does a Manufacturer Benefit from MAP Pricing?
There are several strategic reasons that a brand would want to keep its advertised prices above a minimum level, and to keep these minimum prices consistent across its entire resale channel. For example:
- MAP pricing can help preserve retailers’ margins.
- MAP pricing can help protect the brick-and-mortar and specialty retail partners who may not be able to compete on price with online-only retailers.
- MAP pricing can help protect and even increase the manufacturer’s brand value in marketplace, which could be undermined if retailers substantially discount the brand’s prices.
To better understand the strategic importance of MAP pricing to a brand, consider what might happen to a company selling through a network of retailers without a MAP policy in place to influence how those retailers advertise its products.
Some retailers, particularly pure eCommerce players, will be able to undersell the manufacturer’s brick-and-mortar partners, because retailers maintaining a physical store presence have higher overhead. Consumers can find the brand’s inventory advertised for lower and lower prices online, which will erode every reseller’s potential for margins. This can turn retailers away from carrying the brand entirely.
Finally, as this online price erosion continues, the longer-term effect could be to weaken the brand’s value, as consumers begin to see it as a commodity or discount brand.
Now let’s return to the second operative word in our definition of MAP pricing: influence. Why do we say MAP policies try to influence resellers to advertise at or above a minimum price? Why not demand?
MAP pricing today is typically structured as part of a unilateral policy that the brand sends out to its resale channel—not as an agreement the brand asks its retail partners to sign. This is largely for legal reasons, to avoid potential antitrust violations. It is also partly for business reasons, to avoid the complications of having to secure new agreements from every authorized reseller each time the brand adds a new product to its MAP pricing list or changes the pricing of an existing product.
How Can You Deal with MAP Pricing Violations?
MAP pricing violations are an unfortunate fact of life for brands in the Internet era, but that doesn’t mean you don’t have tools to help address this behavior and even prevent it from happening in the first place.
For example, after you’ve drafted and published your MAP pricing policy, your company should have some process for monitoring the retail landscape at all times (MAP pricing violations often happen at off hours, when retailers are hoping you won’t notice), so you can react quickly when you catch a violation.
Because you’ll want to be on alert 24/7, your MAP monitoring and enforcement solution should be automated. You can’t expect a team to monitor the entire web at all times, no matter how much money you’re willing to spend staffing this function.
You will also want to have a system in place—again, at least partially automated—to send formal warning notices to violators.
Caution: Because you do not want to put your company in any legal jeopardy, you should not discuss these issues directly with violators, and you definitely do not want to strike any deals (verbally or in writing) letting a violator off the hook from whatever consequences you include in your MAP pricing policy, unless you are also prepared to make the same concession for every other retailer who commits the same offense. Otherwise, this could be seen as price fixing, restraint of trade, or other forms of antitrust behavior in which your company is conspiring with one retail partner to undermine the businesses of your other retailers.
One additional point of clarification: If you have an authorized dealer program (and we recommend that you do, before you implement MAP pricing), you do not need to treat unauthorized third-party sellers the same as you treat your authorized retail partners when it comes to addressing MAP pricing violations. That is because unauthorized retailers should not have your company’s inventory in the first place, which means 1) they have no reason to abide by your MAP pricing guidelines, and 2) you can pursue them legally for even gaining access to your inventory for resale without your permission.
Remember, MAP pricing is for your legitimate resale partners only. For unauthorized sellers, you can pursue and legally threaten these companies without any worry about stepping over the antitrust line IF you have an authorized dealer program in place.
So, Do You Need a MAP Policy?
Technically, not every manufacturer or brand needs a MAP pricing policy. But if your company is concerned about the issues we’ve raised here—jeopardizing margins and retailer relationships, online price erosion undermining the public’s perception of your brand, etc.—then you will want some sort of reseller pricing policy. This doesn’t need to be a MAP policy specifically, though, and maybe a different approach might make more sense for your company, such as a Unilateral Price (UP) policy.
As their names suggest, these policies are broader than MAP pricing policies because they cover the prices a brand will allow its resellers both to advertise and actually sell its products.
Can You Stop MAP Pricing Violations from Unauthorized Sellers on Amazon?
The frustrating reality is that Amazon’s policy is not to interfere in manufacturer-retailer disputes over MAP pricing. Amazon’s position is that these are internal business issues that don’t negatively affect the marketplace or consumers. In fact, Amazon has stated it believes retailers competing on price for the same product will benefit customers, and therefore even if it upsets the manufacturer it is still a good thing for the marketplace.
This means if you find a retail partner violating your MAP pricing on Amazon, you will need to address that issue directly and probably without help from Amazon’s Seller Teams.
Amazon might help your company, however, if you catch an unauthorized third-party seller listing your products on its marketplace—but only if you can demonstrate to Amazon that this company is violating your copyrights, trademarks, or other intellectual-property rights to do so. Amazon does not want its marketplace used to facilitate IP theft, so the company will often help brands who can make such a case.
There are tools and strategies available to help your company deal with unauthorized sellers on Amazon. For example:
1. Sign up for Amazon Brand Registry 2.0
The Amazon Brand Registry (recently updated to 2.0) is a program Amazon devised to enlist manufacturers’ retailers’ help in ridding the marketplace of counterfeit products and intellectual-property violations.
Signing up for this program gives your company access to sophisticated search tools developed by Amazon to help locate unauthorized uses of your copyrighted content and other IP across the site. Because many retailers advertising your products on Amazon below your MAP pricing levels won’t be part of your authorized resale network in the first place, there’s a good chance you’ll be able to make a case to Amazon that at least some of these retailers are also illegally using your content to list your products.
2. Learn the most common tactics unauthorized third-party Amazon sellers use to acquire your inventory.
Your company should also become familiar with the various ploys unauthorized Amazon sellers (“3Ps”) use to get their hands on your products in the first place. Understanding how these tactics work can help your company spot them as they’re happening and, ideally, put measures in place to prevent them before they can happen.
Here’s just one example of these tactics: Unauthorized 3Ps might present themselves to your wholesalers or your in-house sales teams as businesses planning to sell in another country, where your MAP pricing allows for lower retail pricing and therefore lower wholesale prices. Then, once they’ve acquired your inventory they will sell it in the US at well below your MAP price levels, significantly undercutting your legitimate retail partners.
3. Learn the most common tactics unauthorized 3Ps use to sell your inventory on Amazon without your knowledge.
You can’t plug all leaks in your distribution channel 100%, which means you also need to be on the alert for unauthorized listings of your products on Amazon. Being part of the Amazon Brand Registry will help you to some degree with its sophisticated search technology, as we pointed out above, but you still need to know what you’re looking for when you perform those searches for unauthorized 3P listings. Some examples of this include:
- Creating fake Amazon Standard Identification Numbers (ASINs) for your products, so the unauthorized 3P can list it without your company realizing it’s there.
- Adjusting your product’s specs, sales copy, or other content to lure customers to the 3P’s listing, even though these tweaks usually include exaggerations or otherwise misleading content to trick customers.
- Selling under phony retailer names (sometimes many of them), so if your company catches unauthorized listings from one seller and manages to persuade Amazon to pull them down (or if you threaten the company with legal action), they can simply reappear with the same listings under another name.
You can learn more about these tactics in our video: Dirty Tricks Unauthorized Amazon Sellers Play.